Economics 449 - A Sample of Potential Exam Questions

Economics 449

A Sample of Potential Exam Questions

Explain all answers fully.

1. For each of the five European Commission Decisions listed on the syllabus, identify

a. the components of the pricing structure used by the cartel,

b. the components of the allocation structure used by the cartel,

c. and the components of the enforcement structure used by the cartel.

2. For each of the five European Commission Decision listed on the syllabus, identify the actions taken by the cartel that extend past the suppression of within-cartel rivalry to potentially enhance the profits of the cartel.

3. For each of the five European Commission Decisions, identify all super-plus factors that would be observable with only information available in the public domain (namely, without access to confidential corporate records). Identify the additional super plus factors that would be revealed by examination of only detailed corporate transactions (namely, products, volumes, prices, and purchaser identity for each transaction by each cartel firm over a multi-year period during the functioning of the cartel).

4. The U.S. Forest Service (FS) sells timber from National Forests by auction. In Region 1 (eastern Washington State, Idaho, and Montana) the FS has historically used, side by side, both first price and ascending bid auctions (from 1983 to 1992 the FS sold approximately 500 tracts of timber by ascending bid and another 500 tracts by first price auction). The bidders at timber auctions are typically sawmills that log the tract and convert logs into lumber. The FS has been concerned about collusion at auctions. What kind of economic evidence should the FS examine to assess if there is collusion at these auctions? Is the evidence different for the two types of auctions? How does the use of the two auctions facilitate the assessment? How does it impair the assessment?

5. Given that an effective cartel is substantially elevating prices above what they would have been without the cartel, and given that the International Trade Commission in review of an anti-dumping allegation would reach a finding of dumping if a foreign firm was selling in the U.S. below cost, how can a cartel be successful in seeking an anti-dumping finding by the ITC against a fellow cartel member?

6. There are two bidders who each have positive valuations for two items that are being sold by means of sequential ascending bid auctions. Bidder A values the first item they win at 100 while their incremental valuation for a second item is 99. Bidder B values the first item they win at 98 while their incremental valuation for a second item is 1. All of these valuations are known by each bidder. Assume (i) no post auction resale, (ii) the reserve price is zero at each auction, and (iii) each bidder wants to maximize their total payoff from the auction. Describe equilibrium non-collusive bidding. What would be the gain to explicit collusion by the bidders?

7. See https://www.justice.gov/opa/pr/two-new-jersey-investors-plead-guilty-their-roles-bid-rigging-schemes-municipal-tax-lien . In some states, when a property holder does not pay their property taxes in a timely way to the local government, the municipality has the right to sell the tax indebtedness at auction. The winner of the auction immediately pays the municipality the full amount of the taxes owed by the property owner. The bidding is for the interest rate that the property holder will owe the auction winner. If after some pre-specified time the property holder does not pay the owed interest to the auction winner then the auction winner has the right to take possession of the property for a price of zero to the current property holder. The auction is an open-outcry descending bid auction in the interest rate. How does this auction design deter collusion by the bidders? Is there a better anti-collusive auction design that typically results in the municipality recovering the full amount it is owed in unpaid taxes?

8. See http://www.law360.com/articles/836204/poultry-producers-hit-with-chicken-price-antitrust-suit . The Department of Justice (DoJ) has asked for your input as a student of the economics of collusion. How should they think about the product/industry/market within the context of Porter’s five forces? Are there potential super plus factors relevant to this product/industry/market that the DoJ should be thinking about before collecting records and information from the defendants? Are there other product/industry/markets that might be of interest for comparison purposes?